FM Arun Jaitley presented the Union Budget February 1st this year, which marks quite a few departures from the norm, For one, there was no separate Rail Budget, that having been integrated into the main exercise – and second, the budget was presented on the first day of the month rather than on the last day as has been usual in the past. Amply living up to the expectations of industry and reflecting the intent and commitment of the Modi government towards ongoing reforms, this year’s budget has been oriented to benefit the poor and the middle- class. A well-meaning, investor- friendly and stimulating budget, which is expected to give real estate and housing a much-needed fillip. NRI Achievers’ brings you a reading of this years new budget …
The newly presented union budget provides a big booster-dose to the real estate and housing sector, which of late has been mired-down by a severe fund crunch holding up projects, going hand-in-hand with serious slump in housing sales. The finance minister has indeed boosted-up the confidence of both the consumers and the investors though his present budget. His budget, which does away with a separate railway budget and was presented to the parliament on the 1st of February this year, is to be seen in the backdrop of the government’s firm faith in the capability of the real estate and infrastructure sector as a driver providing a much necessary boost to our overall economy, especially for realising the objective of ‘Housing for All’, one of its flagship programmes to rejuvenate economy.
In order to give a fillip to the housing sector, particularly for affordable & low cost housing, this year’s budget has adopted the significant policy measure of giving ‘infrastructure status’ to affordable housing. This could be termed as the biggest policy initiative affecting this domain after the historic reform ushered in by the government via the ‘Real Estate Regulation Act (RERA)’. This comes as a big relief for the fund-starved developers, who will now be in a position to get cheaper institutional finance with ease from domestic and overseas sources. Furthermore, the abolition of FIPB is another big step that is going to boost the confidence of foreign investors about our reform process and improving ease of doing business. Long- term capital-gain tax benefits on housing, which may now be availed after 2 years instead of 3, will make real estate an attractive asset class for investors. This in turn is expected to enhance supply of affordable urban housing.
The hike in outlay for rural housing from INR 15,000 crore to INR 23,000 crore under ‘Pradhan Mantri Gramin Awas Yojana (PMGAY)’, will give impetus to the construction of some 10 million rural houses by 2019. The budget also has some other related provisions that are aimed at boosting housing supply. Keeping in view the large number of stalled projects, the timeline to complete affordable housing projects has been raised from 3 to 5 years. The budget has also made an additional refinance of INR 20,000 crore for the National Housing Bank, which will also impact positively on housing supply. Similarly, the much awaited clarity on taxation of ‘Joint Developments’ will cut disputes and give a push to project execution, which in turn will also boost supply.
Realizing the significance of infrastructure in providing impetus to real estate, this budget has made a record allocation of INR 3.96 crore on infrastructure development. Budgetary support for national highways has increased to INR 64,000 crore, and the rural road construction target has been almost doubled. The new Metro Rail policy, focusing on innovative financing and execution, will improve connectivity significantly, which too is a major boon for real estate.
‘Historic’ is the word I would use to describe this year’s budget, as on the surface, it seems to be an out-and-out pro-consumer budget. Having already provided the protection umbrella to property consumers by way of RERA, the government has, through this budget, made several far-reaching provisions to boost consumer confidence and push consumption. The increase in personal income tax limit with additional benefit in tax slabs will land more disposable income in the hands of home buyers, thereby spurring home sales. The extension of loan tenures under the Credit Linked Subsidy Scheme (CLSS) of PMAY from 15 to 20 years is also a great sentiment booster for consumers. The budget has also enlarged the net of affordable housing to bring more people under its ambit by modifying the eligibility criteria of house sizes of 30- 60 mts with built-up area to carpet area within municipal limits of four big cities. The capital gains tax relief will encourage more transactions through transparent banking channels, boosting confidence of buyers. The provision on Joint Developments may well ease land prices to benefit consumers. Avenues for the availability of affordable finance that is likely to open-up to developers with the granting of infrastructure status to affordable housing will reduce cost of construction, which developers are invariably likely to on-pass to consumers.
However, with all these positives, the budget has not really met the industry expectation of providing tax incentives to first-time home buyers, giving higher tax-reduction on housing loans and increasing HRA limits. The industry’s long-standing wish of getting infrastructure status for the entire housing sector was belied, with the special status restricted only to affordable housing – but rightly so I guess, as the maximum housing shortage is in this affordable/low cost housing subsegment. Also, there was no announcement about the much desired single-window clearance system, but then that may well be part of post-budget policy initiatives. All said and done, the budget reflects predictability and continuity of government policies and does promise an early revival of real estate, particularly the housing sector. This will pave the way for a healthy and sustainable growth of not just real estate but allied sectors as well.